Incentives for Small Businesses in Brazil
The Brazilian government has institutionalized several incentives to small business in the country. In this article, we will outline the most significant of these incentives, the Estatuto da Micro e Pequena Empresa
Definitions of small business in Brazil
Brazil has about 7 million companies, of which astonishing 99% are defined as small businesses, according to a Sebrae’s repport. Those companies are extremely important to the country’s economy, not only because they generate a lot of income to the State, but also because they are responsible for distributing wealth and generating jobs.
As the small businesses are clearly in an unprivileged position comparing to large corporations, the Brazilian Government has implemented several incentives to maintain the small companies operating. Also, the sanction of the law was important to formalize several businesses that were irregular in Brazil.
The criteria to classify the size of a company is an important factor when it comes to supporting small businesses, allowing establishments within the limits imposed by the government to enjoy the benefits and incentives provided by the legislation.
In the Estatuto da Micro e Pequena Empresa the criteria used to conceptualize micro and small business is the gross annual revenue, whose values updated are as follows:
Microempresa (Microenterprise): annual gross income equal to or less than BRL 360.000. Individual entrepreneurs are also defined as microempresa.
Empresa de Pequeno Porte (Small Business): annual gross income exceeding BRL 360.000 and equal to or less than BRL 3.600.000.
Currently, these criteria are adopted in various credit programs of the federal government in support of the MPEs.
It is important to know that microenterprises in Brazil are commonly called MEs and Small Businesses, EPPs, acronyms that were originated from their definitions in Portuguese. When someone wants to refer to both, will adopt the acronym MPE.
These companies are supported by the Estatuto da Micro e Pequena Empresa, which we will discuss in the next topic.
Main points of the Estatuto da Micro e Pequena Empresa
The Estatuto Nacional da Microempresa e Empresa de Pequeno Porte (National Statute of the Micro and Small Businesses), also known as Lei Geral (General Law), was introduced in 1999, as a way to establish general rules concerning differential treatment to be given to MPEs.
After the law, it got much easier for MPEs to pay taxes, obtain credit, access technology, export, sell to the government, formalizing and so on. With less bureaucracy and more opportunities, entrepreneurs gained more, generating employment and income.
The law brought many benefits to the performance of MPEs in Brazil, among them:
Benefits regarding bureaucracy
The bureaucracy for MPEs has diminished significantly after the law, as it not only turned simpler the taxes’ collection, but also simplified the process of opening a the company.
The General Law also helps those who had to wait months to be able to close your old company to open a new business. The closure of the company with more than 3 years is now automatic, with the taxation debts assumed by the partners or owner.
Benefits regarding taxation
The greatest benefit regarding taxation is the Simples Nacional regime, which is a special arrangement destined for micro and small sized companies. In this arrangement, the MPEs collect IRPJ, CSLL, PIS, Cofins, ICMS, IPI, ISS, and CPP all in a unified payment.
Benefits regarding access to credit and technology
After the law it is easier and cheaper to get loans and financing with longer maturities, since microfinance and microcredit was strengthened by the credit union. Several Brazilian banks are supported by the government as well to provide credit to MPEs.
As for the access to technology the Law imposes the destination of 20% of the municipalities resources to public institutions to foster technological innovation.
Benefits regarding export activities
The law reduced bureaucracy and established tax incentives for MPEs to export. This measure reduced export taxes for small businesses, leading to this segment benefits already enjoyed by large companies.